5 Reasons Why Every Startup Should Offer a Free Tier, and 1 Big Reason Why They Shouldn’t | In
He’s right, of course, and that’s the one big reason you should never give away the “product on the field” for free. Yet startups, especially tech startups, give away their product all the time in the form of a free tier. They let you use their product as much as you like for as long as you like, within certain limits.
Ultimately, no matter how small the discount or how short the trial, the product will always take a perceived value hit. At some point, that hit to the brand is no longer worth the additional conversion rate. When you think of market leaders – Disney for park tickets, Apple for hardware, Netflix for streaming – you realize that the category winners don’t discount their product, or at least they make it really difficult.
So why am I telling you your startup needs a free tier? Because in this case, devaluing your product is exactly what I want you to do. I’ve learned that when you lower the value of the product, within certain limits, you gain the knowledge and the power to prevent both you and your customers from falling into some bad habits.
Once you take away the “pain” of a product’s cost, you remove any artificial necessity to engage with it. When that happens, you immediately realize how much a customer actually “needs” your product versus how much they “want” your product.
What overuse might be suggesting is that there is not enough of a compelling reason to become a paying customer. You might be giving away too much, but it’s more likely that what you offer at the paid level isn’t worth the price. Or any price.
There are several apps and SaaS products I use at a free tier that offer a paid level that isn’t compelling to me. However, if they told me that I would need to start paying for the same exact usage I get today, I’d pay in a heartbeat – unless I found a competitor offering the same level of usage for free, a scenario that’s usually likely.
But despite conventional wisdom, misuse and abuse of a product can also shed light on opportunities in terms of use cases the product doesn’t formally address – and maybe should. If your free tier customers are regularly using your product for use cases it wasn’t intended to fill, you might be able to open up entirely new markets just by making small changes to your feature set or pricing model.
You can usually mark down any customer satisfaction metric when the customer isn’t paying for the product. If they’re not rating your product five stars out of five, it means they’re rating it zero out of five.
You might find that your free tier customers aren’t telling you what your product should do, they’re telling you what your product could be.
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